Interest rate still at 2.5 per cent

Wellington (dpa) – New Zealand’s Reserve Bank left its benchmark interest rate at a record low of 2.5 per cent on Thursday, said governor Alan Bollard.

He said although the economy was continuing to recover  from the recession, “considerable uncertainty about the durability of the expansion” remained.

Bollard said economic activity was rebounding in Australia, China and emerging Asian countries where solid growth was expected over the next few years, but sustained growth was not assured in the major developed economies.

“Financial sectors are still impaired in a number of economies and economic activity is still heavily dependent on policy support.”

The New Zealand economy was recovering, reflecting improved world  growth, higher export commodity prices, increased government spending and housing strength, he said.

“A key uncertainty is the extent to which higher house prices are eventually reflected in increased consumer spending. At this point, credit growth remains subdued suggesting households are being relatively cautious.”

Bollard said that while business confidence had improved, actual business spending remained weak and the high value of the New Zealand dollar limited scope for exports to contribute to the recovery.

It was the sixth time the bank made no change in the so-called official cash rate (OCR) during scheduled policy reviews since cutting it from 3 per cent in April.

Bollard said that if the economy continued recovering, he could start lifting the rate around the middle of 2010.